History has taught us that urbanization and economic development go hand in hand. But the experience of developing world nations today has been more mixed. In some oft-cited cases like the booming regions around Beijing and Shanghai, city growth has been associated with rapid economic development. And throughout the developing world, cities have far higher levels of economic productivity when compared to their nations as a whole. But in many other cases, urbanization has been accompanied by low levels of economic growth — a phenomenon that Harvard economist Edward Glaeser has called "poor country urbanization."

New research from a trio of MIT economists — Ph.D. student Benjamin Marx and professors Thomas Stoker and Tavneet Suri — can help us understand the connections between rapid urbanization, economic growth, and the boom of slums. "The Economics of Slums in the Developing World," published in the Journal of Economic Perspectives, looks at the persistence of economic deprivation in slums — impoverished neighborhoods with low levels of human capital, poor housing, cramped living conditions, inadequate infrastructure and public services, and high levels of crime and deprivation.

Slums are not a temporary problem.

The authors critique what they dub the "modernization theory" of urban poverty, which holds that slums are a temporary phenomenon on the path of economic development. They argue that these "areas of depressed public and private investment" are self-reinforcing "poverty traps." For both slum residents and growing cities as a whole, slums are "neither temporary not a short stop on the way to greater economic opportunity."

While the authors note a general connection between urbanization and economic development, their close look at cross-country research on the relationship between the two and slum growth turns up a mixed bag. The countries that saw the fastest economic growth over the last 20 years were also the ones that managed to significantly reduce the proportion of their urban residents living in slum conditions. But rapid urbanization was frequently not associated with improved economic growth, a result of the "push factors" that bring people to cities, including war, natural disasters, and extreme rural poverty. They call this phenomenon "growth without growth."

To demonstrate the "heterogeneous experiences" of some of the countries with the largest slum populations, the authors provide a fascinating graph that combines the metrics of overall urbanization, growth in slum population, and economic growth (see below).

The countries are ranked by the proportional growth or reduction in slum population from 1990 to 2007, as shown in the grey bars. The solid dark line measures overall urban population growth, so the countries where the gap between the gray bar and the solid line is larger (India and Indonesia in particular) saw far more growth in non-slum areas. In places like Pakistan and Nigeria, slum growth accounted for nearly all urbanization over this period. The dotted line indicates overall economic growth, as measured by percentage increase in economic output or GDP per capita (divided by ten in order to fit on the same graph scale).

Countries where slum populations fell (Egypt, Mexico, and Indonesia) had similar levels of per capita economic growth as those at the opposite end of the spectrum, where most urban growth occurred in slum populations (like the Philippines, Pakistan, and Nigeria). This leads the authors to conclude that "the connection between economic growth and slum growth across countries is quite diverse, without a uniform pattern."

Complicating matters further is the fact that efforts to deal with these problems often have little effect. In 2009, the Indian government announced the creation of an urban investment scheme with a particularly bold goal: within just five years, they would achieve Rajiv Awas Yojana — a "slum-free India." Two years later, with the ambitious housing plan still essentially in its conception stage, the country's Committee on Slum Statistics came out with a sobering estimate. Even with these renewed efforts, the population living in the country's slums would grow 12 percent between 2011 and 2017.

Even more troubling for policy makers: any improvements in quality of life in slum neighborhoods can increase the pace of in-migration, leading to more overcrowding and a cycle of increasing poverty.

That said, the authors note that not all hope is lost. Good governance and stable, accountable, and transparent institutions matter. Economic development can occur in poor, urban areas with rich combinations of policies and interventions. They key is creating a mix of holistic policies that encourage ownership and investment and improve quality of life without transferring benefits to slumlords or further driving explosive population growth in these neighborhoods. As the authors explain:

Countries that managed to curb the growth of slums, such as Brazil or Egypt, indeed appear to be those where slum policy relied on a combination of instruments — including efforts to increase the transparency and efficiency of land markets, to improve local governance, to increase public investments massively, and to increase the supply of cheap housing.

Their holistic approach requires us to go beyond just providing better housing and consider how to adjust systems of land ownership, private savings, health, sanitation, and local governance.

Truly functional cities are far more than just clusters of people. They also have the systems, institutions, and mechanisms that improve their productivity. For much of the recent history of the West, these two developments of institutions and population growth have gone hand in hand.

More recently, new technology and a global food supply have allowed for greater masses of people in less developed parts of the world, as Glaeser explained in new research that I wrote about last week. The megacities of the developing world, some of which are home to the fastest growing slum populations in history, don’t have the strong, accountable, and transparent state and market structures to properly deal with the challenges of rapid population growth.

But as Marx, Stoker, and Suri point out, an even more basic challenge prevents policy makers and social scientists from properly addressing the problems of slum living. We lack the most basic data and tools required to measure and understand these persistently poor neighborhoods. As they note, we don't have the metrics even to estimate their populations with any degree of accuracy — not to mention their economies, poverty levels, and existing services. For example, in Nairobi’s Kibera slum, population estimates range from 170,000 to well over a million. The authors call for a massive effort to develop more research and better data aimed at quantifying and understanding the extent and problems of global slums.

They are right. With global cities expected to grow so fast, the world needs a massive clinical effort aimed at upgrading the institutions and policies of developing cities. As a first step, we must invest in creating and collecting better data in order to understand which cities are progressing and which are not. Then, we can begin the important task of breaking this cycle of urban poverty.

Top Image: A view of the Kibera slum in Nairobi. (Thomas Mukoya/Reuters)

About the Author

Richard Florida is Co-founder and Editor at Large of CityLab.com and Senior Editor at The Atlantic. He isdirector of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at NYU.
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